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How Will I play the Twitter IPO?
A recent filing with the Securities and Exchange Commission
was done so on a confidential basis. It was an S-1, the
filing form for an initial public offering and the subject
company was twitter.
Twitter will disclose its financials shortly before it heads
off to a road show, but that shouldn't happen until we are in
November. The likelihood of a late November or early
December first trade seem quite strong.
How will I play the IPO? Well I am not the best client of
Goldman Sachs and few people are, but I can still find a way
to play the IPO right now and look at how a portfolio manager
might view it as well.
The Venture Capital Route
((GSVC - Snapshot Report)) is one of the top Twitter plays, but it probably
isn't the best. The company is a closed-end management
investment company, which is a long way of saying that it
acts like an venture capital firms. It holds shares in
several private companies and makes its own shares available
to the public.
Often times, a closed-end firm like GSVC will end up
consistently offering shares to the public in hopes of
raising more capital that it can then invest in early stage
companies like Twitter. That makes a long term investment in
these companies a difficult prospect for many investors and
the dilution will make it hard for those stocks to achieve a
Zacks Rank #1 (Strong Buy) or #2 (Buy).
To drive home the point about what is going on at GSVC, skip
ahead to 22 minutes mark.
On the positive side, GSVC hold about $37.6M worth of Twitter
stock and that translates to 15% of the total investable
portfolio for the company. They also hold interests in
Dropbox and Coursera.
The ETF Route
Global X Social Media Index
((SOCL - ETF report)) is another route that investors might want to take
if they are not in line to take part in hot issue IPO's
through they brokerage. This spreads the risk out a little
more than just owning the stock of one company, but it
doesn't give you full diversification.
what you also get is a couple dozen other Social Media names,
with the top two names (in terms of % of the index) being
from Asia. That may not be the ideal risk quotient that you
are looking for, but there is little doubt that Twitter will
be added to this ETF as soon as it can.
This ETF carries a Zacks Rank of 3 (Hold) and the ETF Risk is
How A Portfolio Manager Will Look At It
((FB - Analyst Report)) and Yelp
((YELP - Snapshot Report)) are two of the prominent names in the social media
space that are likely found in the above mentioned ETF. They
may also be names in your personal portfolio. And if a
portfolio manager has had the ability to buy them (and wanted
to beat the market) they likely hold them too.
Facebook is a Zacks Rank #2 (Buy) while Yelp (YELP - Snapshot Report) is a #3
(Hold), but how is the portfolio manager going to look at
each with a week or so to go before the Twitter IPO?
Portfolio Managers have many choices, but ultimately its a
decision of buy, hold or sell. Will they allocate more of the
current portfolio to social media stocks, and run the risk
of being overweight a risky sector of the market? More
than likely, they will look to sell a portion of most of the
other social media names (like FB and YELP) but will want to
hold the ones that hold the most future potential.
Given the recent large moves in both names, FB and YELP might
present smaller investors with a chance to take some profits
and allocate some of that cash into a new name like Twitter.
This strategy could play out for smaller investors, but could
be an opportunity for those looking to add to existing
Twitter is going to be a hot issue. There are a few ways to
play it right now, but they also carry a high degree of risk.
Alternative social media names have had a big run, but some
investors make look to reduce position sizes to avoid being
overweight in a risky sector of the market. But how will I
play it? Easy, I will buy it about 30 minutes after it first
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